June 5, 2015

Markets Today: Another step down the road we go

As has been touted in recent days, the IMF confirmed that Greece has asked the IMF to bundle its four June payments into one, delaying therefore the €301mn payment due to the Fund tonight

As has been touted in recent days, the IMF confirmed that Greece has asked the IMF to bundle its four June payments into one, delaying therefore the €301mn payment due to the Fund tonight.  IMF spokesman Gerry Rice said that under a Fund Executive Board decision of the late 1970s, member countries can ask the Fund to bundle multiple principal payments due in a calendar month into one.

Greek PM Tsipras is due to speak to the Greek Parliament tonight and apparently to respond to its European creditors on Monday on a reform plan given to Greece.  Europeans are pressing for agreement by June 14.  German Chancellor Merkel is quoted overnight saying that “we are from reaching a conclusion”, that combined with the payment bundling points to a further episode of “kicking the can down the road” and still with no evident structural resolution to Greece’s debt issues.

Against that background and continuing wire chatter overnight, the Euro rallied for a time to over 1.135 (on what looked to be some USD softness for a time), but has since given up those gains to be trading just below 1.1250 in the lead up to payrolls tonight.

Adding some spice into the mix for the US$, the IMF has weighed into the rate lift-off debate overnight in its US Article IV annual report on the economy saying that rate lift off should be delayed until 2016.  The night before’s US trade report for April reported an encouraging start for trade into Q2 pointing to the absence of what was a large net export drag in Q1.

The big loser currency wise over the past 24 hours has been the AUD in what has been a very whippy week for the Aussie battler.  It started the week soft after weak Capex, surging after the RBA Board and GDP, but falling back again yesterday after softer retail sales and the trade blowout.  The AUD overnight is somewhat weaker again in net terms overnight and trading just below 0.77 this morning.  Iron ore spot prices were up a strong $1.44 yesterday to $64.77, the highest levels since early this year.

Coming up today/tonight

Very light on for data this morning with the AU AiG PCI Construction index for May and the Japanese leading index.  Ahead of payrolls tonight comes German factory orders and a later vintage of Euro Q1 GDP.

But the market is really fixated now on tonight’s US non-farm payrolls for May.  The consensus expectation is for headline payrolls growth of 225K, virtually the same as April’s, with the unemployment rate steady at 5.4%.  Similarly, average hourly earnings are expected to have grown by 0.2%/2.2% after April’s 0.1%/2.2%.  With such sharply unchanged expectations, there’s the definite potential for price action should the outcome be too much different from expectations.  Last night’s jobless claims data continues to reflect a labour market that is still holding a degree of vigour.

Canada also has its May labour market report tonight, released at the same time as the payrolls.  Canada’s unemployment rate is expected to be steady at 5.8%.  Last night’s IVEY PMI for May included a strong headline result (62.3) and an encouraging rise in the employment component from 50.3 to 51.8, having been below 50 in February and March.

With Monday a public holiday, just a reminder of scheduled Asia data at the start of next week.  In Japan, there’s a later vintage of Q1 GDP and expected to be revised up marginally, along with its April current account report, May bank lending and Economy Watchers’ Survey.

On Tuesday, the NAB Business Survey for May is being released along with May housing finance approvals.


Equities weaker ahead of payrolls, and US Treasury yields lower too: Eurostoxx 600 -0.8%, Dax -0.7%, CAC -0.9%, FTSE -1.3%.  Dow -171 points to 17,906, -0.9%, S&P 500 -0.9%, Nasdaq -0.9%, VIX 14.71 +7.7%.  Mumbai +0.8%, Nikkei 225 -0.8% and ASX 200 -0.1%; ASX SPI futures this morning -0.3%.  US bond yields: 2s at 0.66% (-1), 10s at 2.31% (-6).  WTI oil at $57.98 (-2.8%), Brent at $62.08 (-2.7%), Malaysian Tapis (yesterday) $65.14 (-1.1%).  Gold at $1176.60/oz (-0.7%). Base metals: LME copper -1.6%, nickel -0.4%, aluminium -0.5%. Iron ore $64.8/t +2.3% Chinese steel rebar futures +0.1%. Soft commodities spot futures: wheat +2.8%, sugar +0.6%, cotton +0.0%, coffee 1.0%.  Euro Dec 14 CO2 emissions at €7.43/t (-1.2%). The AUD/USD’s range overnight 0.7664-0.7763; indicative range today 0.7655-0.7730; the AUD/USD is 0.7688 now

The Bank of England left policy unchanged, as entirely expected

US weekly Jobless Claims (w/e 30 May) 276K (L: 282K: E: 278K); US Unit labour costs (Q1, revised) 6.7% (L: 5.0%; E: 6.1%)

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